Archive for November 2011

Times are hard, our politicians have (with the collusion of the electorate) made a right mess of things and huge numbers of people across the UK and Europe have seen their real income falling. Our leaders are exhorting the people to make sacrifices for the good of the nation, so I think it might be time to take a look at their remuneration. Fair is fair after all.

A voter pays an MP yesterday.

Performance related pay has become widely prevalent in the private sector. If you’re good at your job then you get more money, be it in bonuses or other benefits. The important point is that your incentives are more closely aligned with those of your employer. Everyone wins. Well, except the people who are bad at their job… MPs on the other hand have a fixed salary, the only risk they face is losing their seat and hence their job. Unfortunately the link is not all that strong. The Electoral Reform Society estimated that approximately 60% of the House of Commons’ seats were safe. Many of the others would only change hands in exceptional elections. For the majority of MPs, there is little to fear from voters.

I think the current level of pay for UK MPs (just over £65,000 p.a.) is about right. However, up until recently it was MPs that set their own salary, and there is still no link with their performance. The US Congress has an interesting system for trying to deal with the issue. Basically, any pay rise that its members give themselves only comes into effect after the next election. In my opinion, that’s a nice idea, but in the end representatives’ pay will (and probably should) be subordinated to other issues when voters make their choices.

So, I propose linking MPs pay to a weighted average of changes in the nation’s incomes. Each year their pay would be revised up or down based on the percentage change in the average income of each tenth of the population. If the top tenth had their income increase by 20%, MPs’ pay would also increase. However, it would not increase by 20% unless everyone’s income went up by that much. Instead, assuming no one else’s income increased it would only go up by 2% (10% of the population, 20% increase, 10% of 20% is 2%). If everyone’s income increased by 20% then it would go up by 20%, if only half the population had an income increase then it would go up by half of whatever their average increase was.

This encourages the government to support growth, but it also encourages it to support growth that benefits the population as a whole. This is because, assuming the same amount of economic growth, the more it is concentrated in the hands of the wealthy, the smaller it will be as a percentage of income for the people it benefits. If the economy is £100b richer, and all the gains go to the rich, it might only give the richest 10% a 1% increase in their incomes. If all of that money went to the poorest 10% it might be 100% of their incomes. So, for the same increase in absolute terms the politicians’ pay would go up considerably more if the money went to the poor.

The last 10-20 years have seen significant economic growth, but much of that growth has gone to the richest part of society. My proposition aims to incentivise economic growth but also a more equitable distribution of it. The rich have plenty of tools for influencing public policy to their advantage, equally attempts at massive wealth redistribution would be likely to hurt growth. For MPs to get their pay increases they need economic growth, my way just aims to ensure that that growth is shared round a bit more.

Of course there are some weaknesses to this proposal. Firstly, it might over-emphasise economic growth as a tool of government policy. I accept this is a possibility and there are plenty of other goals which should be pursued, however, I do think that economic growth remains the best method of improving people’s living standards as long as it can be fairly distributed. It also provides a far more transparent method of assessment than most other policy goals could.

There is also has the problem that it might not actually be a significant incentive. If MPs get most of their income from other sources, then they are unlikely to care much whether they get a 1% or a 3% pay rise. Unfortunately I don’t have any statistics on MPs’ extra earnings, but from my own political experience and knowledge my impression is that most backbenchers do in fact rely on their pay. Ministers may be a different matter – even if they have few extra earnings during their tenure, they often have significant opportunities to earn after they resign. For an extreme example look no furtherthanTonyBlair. In the end, I think some incentive is better than no incentive, and people like Tony Blair are certainly not the norm.

Finally, there is a risk of short termism. The current debt crisis is a good example of the problems with politicians ignoring sustainability in favour of immediate growth. If you can boost incomes significantly with government borrowing then you can effectively mortgage the country’s future in order to get a pay rise now. Of course these arguments could also be applied to having elections on a regular basis. What I would say is that there is a very high incumbency rate in the UK which gives MPs an incentive to think in the long term. In this case my pay scheme could actually work better than elections for long term thinking. If most MPs know that they will probably be in their position for a long time, it doesn’t matter whether they’re part of the government or not; if they leave the other party a heap of shit to deal with, their pay is still going to drop.

So, all in all, I think the idea could work. Bringing a bit of private sector style incentivisation to our legislature would do it good and it would be nice if the proceeds of growth could be shared a little more evenly. If you see any holes in what I’m proposing, please do feel free to criticise.

*It’s worth noting that MPs do also get very good pension rights, amongst other things, which makes the remuneration more attractive than the base figure would suggest.

The eurozone crisis should be depressing anyone who even half-heartedly follows business news. The contagion is spreading rapidly, even core countries such as France and the Netherlands are seeing their debt yields rising. If Italy does go over the edge we can prepare ourselves for a full on depression.

Credit for the Image to 'africa'

So, here are three pieces of good news. They don’t outweigh the general doom and gloom surrounding the European (and by extension the world) economy, but they do provide glimmers of light at the end of the tunnel. Without further ado:

1) If the eurozone can survive the next year or two it will be in an excellent competitive position. According to a study from the Lisbon Council, a Brussels based think tank, reforms of the major European economies is much further along than the popular perception, and the economic and competitive convergence needed to successfully run a single currency are also taking place. They have harsh words for France, which appears to be reforming as little as the Germans but without their strong economy, but the PIIGS are said to be rapidly improving their situation.

2) Portugal is meeting its targets and Ireland’s GDP has started to grow again. Today the ‘troika’* announced that they were very satisfied with Portugals progress and that it was successfully meeting its targets under the bailout deal. Similarly Ireland’s GDP has grown in the last two quarters.

3) Italy has never defaulted on a debt in peace time. As this Telegraph article explains, Italy’s only debt default in its whole history was on debts owed to the Allies in 1940. I don’t much approve of people defaulting on debts they owe to us, but when we’re actually at war it’s probably excusable. This contrasts with France and the UK which defaulted in 1932 and 1933 respectively. Italian default is the greatest danger to the European economy, and so if you have reason to think they don’t do default it’s a reason to be more optimistic.

Realistically there are plenty of reasons to feel down about the European economy, and my own view is that it has a pretty negative outlook. But hey, writing this post at least made me feel better for a bit.

The Guardian published an article some time ago confirming many people’s prejudices about A levels. Some are worth more than others, not just in the sense of getting you into good universities, but in terms of difficulty and rigour.

Be careful what you work for

The problem with this is twofold. Obviously A levels should be comparable qualifications. However, subtler and far more important is the impact on equality. If you go to a good school and have a knowledgeable family then you’ll probably be aware of the reputations of the subjects and can make an informed choice. For those in more disadvantaged positions this is not the case. Law A level is a classic example. It is widely regarded as a joke subject or (non-preferred A level if you’re being polite), but I have heard a number of young people say they wanted to become lawyers so they took A level law. It is entirely logical to do so and also entirely self-defeating.

The pernicious influence of league tables* adds to the problem. By rating schools according to their results they create a strong incentive for schools to push their students into easier subjects. Inevitably the ones who suffer most from this will be the disadvantaged children who don’t have the benefit of well-informed parents. It is a classical problem of differing incentives. The school’s main incentive is to boost its results and for that purpose easy A levels are best. For a level candidates the goal is probably to get into the best university they can, and for that doing media studies is very unlikely to be in their interest.

In theory it should be reasonably easy to solve the problem. Unfortunately, in practice it’s much more difficult. Firstly you would have to overcome political inertia. It is not in the government’s interests to admit that different subjects are easier or harder. Any admission would result in a barrage of criticism from teachers, upset parents and the opposition. If this could be dealt with there would still be the question of how to do it. Either easy exams become harder or hard exams become easier (or both). Call me a cynic, but if the government has a choice between seeing tens of thousands of people do much worse than expected and tens of thousands of people doing better than expected, they’ll choose the one that doesn’t result in crying teenage girls** on television.

So, we get even more grade inflation, the government celebrates its achievements in ‘raising standards’ and making sure that all subjects are equal. Grade inflation is, of course, the other big problem with the UK’s exam system.

Exams are meant to measure absolute and relative achievement, grade inflation interferes with both. It has two possible causes, students might be getting better at exams/smarter or exams might be getting easier. It isn’t implausible that teaching is getting better (I doubt students are inherently smarter), and I’m wary of saying exams are getting easier – after all I’d expect them to seem easier to me given that I’ve already studied the subjects and in several cases done them at university level. However, given complaints from university lecturers about insufficiently prepared students and a bit of gut instinct, I don’t think it’s unreasonable to think that the improvement in grades cannot be accounted for by better teaching.

I personally experienced one example of falling standards due to the oddities of my own experience with A level maths. The year I took it, you had to do three pure maths modules (P1, P2 and P3) in addition to three applied maths modules. The year after, the syllabus was changed to four ‘core’ maths modules (C1, C2, C3 and C4) along with two applied modules. There was no significant difference between the four core and the three pure modules. So, maybe no fall in absolute standards, but it meant that you did one less applied maths module, reducing the content of the A level by almost 20%.

The government recognises the problem of grade inflation, and has tried to deal with it by introducing the A* grade for A levels. In my opinion this is the wrong tactic. It fails to address any of the underlying issues, and in fact A*s are now suffering from grade inflation too. If the system is debased too far then you need to move to a new system, either of exams or grades.

One solution would be to simply grade by percentages – give the best 10% of candidates As and so on. This removes any incentive to make exams easier. Effectively the number receiving each grade is fixed by the total number of candidates. However, what this system lacks is the ability to reliably show absolute achievement. It makes it much harder to tell whether the exams are getting easier or harder. It’s all very well to know that someone is better than 90% of their peers at German, but that tells you nothing about whether they can actually speak the language. The other big problem is that even if you make the exams equally difficult, if weaker students tend to take a particular exam then you have an incentive to take that one to improve your grades.

So, that leaves completely re-jigging the exam system. I think that if you want to deal with both grade inflation and some exams being easier than others this is the only politically viable solution. The next question is what should it be replaced with? Basically, I think the choice is between an A levels+ system or a baccalaureate.

By A levels+ I mean a restart of our current system, with students taking only three or four specialist subjects . A baccalaureate on the other hand would involve a wider range of subjects and would include some compulsory topics such as English and a foreign language (good luck on that since the government removed compulsory foreign languages from the school curriculum). Arguments can be made both ways, and frankly I’ve written enough for today.

*League tables are not actually a bad idea and providing parents with more information can only be a good thing. It is only in this particular respect that I object to them.

**As the link shows, the UK media’s rather excessive interest in hot teenage girls on exam results day is a well documented phenomenon.